The program is designed to encourage Canadian businesses to conduct research and development in Canada. Depending on where you live, business owners can recover up to two-thirds of what they spent on salaries, one-third of what they spent on contractors and two-fifths of the cost of materials of build a prototype. But you have to keep accurate records to prove your expenses.
In a recent case, a company’s claim for two-thirds of salary expenses was denied because their claim for the portion of salaries that related to SR & ED was made based on the company president’s estimates after the year end of the percentage of the salaries that were involved in the various SR & ED projects, without any record of time sheets.
The Court stated
“The arbitrariness of an officer relying on his knowledge of the business is not sufficient to demonstrate the proportion of salaries eligible for a tax credit.” (Focus Micro Ondes Inc. v Agence du Revenue du Quebec).
The application process is quite complicated, so any business owner would be well advised to consult the services of a tax professional who is familiar with the process to maximize their chances of the application being allowed.